Report: "The state of the economy is better than the Bank of Israel forecast" | Israel Today

Leumi economists estimate: Due to the nature of the closure "7% decline in GDP - far" • "Expect a contraction of 5% 'only'" • Soon: Possibility to invest in Chinese government bonds

• Mahane Yehuda Market on the eve of the holiday

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  Oren Ben Hakon

The Bank of Israel's pessimistic forecast is not expected to materialize, and the decline in GDP at the end of the year will amount to 5.5%, according to Dr. Gil Befman, chief economist at Bank Leumi, and interest rate strategist Dudi Reznik in their weekly review published today (Monday).

"The Tishrei holiday closure is expected to be less tight, so a seven percent drop in GDP this year, according to the Bank of Israel's pessimistic forecast, still seems far away," say senior economists, who warn that tightening and extending restrictions into the last quarter of 2020 will exacerbate the forecast. For that. "

With regard to the extent of unemployment in the economy, Befman and Reznik estimate that the current closure is expected to increase the unemployment rate in its broad definition, which amounted to 11.2% at the end of August - about 470,000 unemployed people in the labor force.

According to the two, the "normal" unemployment rate in the entire economy will be in the years 2021-2020 at an annual average of about seven percent.

Exports are strong

Despite the closure, the decline in GDP and the relatively high unemployment - in the past year there has been an increase in Israel's current account surplus (imports of products and services reached a lower amount than Israel's exports), which Befman and Reznik estimate is expected to stand at 5% of GDP in 2021-2020. More than a third compared to 2019, when the surplus from GDP was 3.6%.

"The current account surplus on the balance of payments continues to grow, a development that is a fundamental factor that supports the strength of the shekel, along with a trend of capital movements entering the economy (investments), financial and direct-realism," Leumi economists explain.

In other words, the Bank of Israel is expected to continue buying dollars at a high rate, after its foreign exchange reserves have already crossed the $ 160 billion mark. According to them, the inflation environment in Israel is not expected to rise significantly in the coming months, unlike the US.

China will also join

Befman and Reznik also refer to an interesting development expected this week in the global economy: This coming Thursday it will be decided whether China will be included in the World Bond Index (WGBI) - which Israel joined about a year ago. Last May, it officially amounted to $ 5.5 trillion - about 50% of China's GDP, and an unreported debt of another 6 trillion may need to be added to that amount.

According to Befman and Reznik, since the process began in 2019, "China's policymakers have taken various steps to improve the accessibility of foreigners to the market, indicating that there is a good chance that China's government bonds will be indexed.

"China's possible inclusion in the WGBI will bring the Chinese government's bonds one step closer to global investors."

This is a move that the Trump administration, which is waging a trade war with China, is unlikely to like.

As you may recall, President Trump is careful to call the corona "the Chinese virus", because that is where the virus broke out and due to China's problematic conduct, to say the least, in treating the epidemic and stopping its spread.